What is a loyalty program and what are they?
A loyalty program is a way to turn casual customers into regular ones. It is aimed at motivating the buyer to return for a product or service again.
This is achieved through various mechanics. There are several options available for small businesses.
Discount program
The point is that a person receives a discount on all subsequent purchases or special offers from the company. This opportunity is usually provided in two ways:
- They issue a discount card after the first purchase or a receipt for a certain amount. At the same time, the threshold for entering the program can encourage the client to purchase more in order to receive a card.
- They ask you to register on the website or app.
Subsequently, the client can claim a discount upon presentation of a card or phone number. Discounts are often cumulative: the more you spend, the more you save on your next purchases.
In addition, using the bonus program, you can legally collect personal data from the client. He will indicate them himself when filling out the application form for the card or registering in the application. This way, the business will receive a phone number or email address that it can use for marketing purposes (but it’s better not to abuse this, no one likes spammers).
The difficulty of such a program is that it (like the others) needs to be carefully thought out. For example, how quickly will a person receive a discount and how many buyers will be able to take advantage of it? If the entry threshold is low, that is, for example, every second person applies for a price reduction, the price of the product already at a discount becomes a kind of basic one, otherwise the business turns into charity. But then the price without a discount will be higher, which may scare off new customers. So a balance is important here: set prices in such a way that it is both profitable for business and attractive for people.
Nikita Storozhuk
Director of Finance and Sales at The Welder Catherine coffee roasting company.
We have a multi-level loyalty system, which automatically includes every registered user of our online store. The point is that, having made a certain number of purchases in a specific period of time, a person automatically moves to a new level: the higher it is, the greater the discount. Each buyer (wholesale, retail and subscribed) has its own discount program.
For example, for retail, the scheme is as follows: the first level is a minimum discount of 5%, which starts from the sixth order, made no earlier than three months from the date of the first purchase. The maximum discount you can get is 20% at level four. It is available from the 21st order, and at least a year must pass after the first purchase. As an additional bonus: when we have some rare and interesting coffee in small quantities, we can launch it on sale only to those who are at the highest level in the loyalty program.
In May 2023, approximately 25% of our wholesale customer base was at the maximum discount level. In our case, encouraging and stimulating regular purchases over a long period of time helps the business to feel stable and confident, without unnecessary production overloads due to a sudden large order.
Cumulative bonus system
The client issues a card or registers in the application and in return receives bonus points. They may accumulate untimely or have an expiration date. You can use points to pay for part of the purchase or to purchase something from the catalog of special offers with them. Sometimes the number of orders is counted instead of points. For example, cafes with business lunches often make offers like “buy six lunches, get the seventh for free.”
This program can be more effective for business because the discount is simply there, you can use it or not. And bonuses accumulate and become a kind of client capital. This is a currency that can only be spent in one company.
But the effectiveness of the savings system largely depends on how exactly the bonuses can be used. For example, if points are only allowed to be spent up to a certain amount, this could become an obstacle. Because before this, the buyer must be motivated to come several times and leave a lot of money. Also, problems will likely arise if what the client can purchase under the program is not very interesting to him. Let’s say a coffee shop gives you the seventh drink as a gift. But this is only espresso or tea. And the buyer always orders hot chocolate and coconut raf. The chance that a person will be attracted by the opportunity to get espresso, even for free, is not so great.
Yulia Tokhtueva
Marketer.
My partner and I implemented a loyalty system in a pet store. We decided to use a bonus card system, which allows you to accumulate points with every purchase and receive discounts or additional benefits.
As a result, we have noticed several positive changes. Firstly, the number of repeat customer visits increased by approximately 30%. The program provided an additional incentive to return to our store as people could benefit from their purchases. Secondly, the loyalty program allowed us to obtain more detailed information about the preferences and purchasing behavior of our customers. We were able to analyze data on trending products and provide personalized offers and recommendations. This improved the quality of service and customer satisfaction. Thirdly, the average bill increased by 15%.
Referral system
This program is more suitable for those who sell goods or services, especially when it comes to high-value checks. The point is to encourage existing customers to invite friends and receive discounts or gifts for this. Ideally, the new client also receives some kind of bonus.
For example, a beauty salon may offer a discount on coloring or a free procedure to those who came through a tip. At the same time, small businesses do not even have to build complex digital systems to record bonuses. The administrator only needs to enter data manually into the database when a new client names his advisor.
Affiliate system
This loyalty program implies that a client who contacts one company receives a discount from another. This can be effective for large organizations. For example, a person buys airline tickets and receives a discount on a popular marketplace. And the user will definitely find something there, so it’s beneficial for him. For companies, obviously, too: they will both sell something.
In this regard, it is more difficult for small businesses, since clients come from different backgrounds and guessing all their needs is often like shooting at sparrows with a cannon. So the affiliate system needs to be carefully thought out. It can work if, say, a small gym and a sports nutrition store join forces – it’s obvious that their audience segments overlap. Another example: a coffee shop and a hairdresser rent rooms in the same premises. They can unite on a territorial basis. Salon clients will buy drinks at a discount, and people who come for coffee will be motivated to turn to local craftsmen.
Immaterial system
Previous programs implied some kind of monetary reward. But you can go another way. It is more about building relationships between the client and the company. For example, a coffee shop may accept batteries from customers and transfer them to a hazardous waste collection point. This affects the image of the establishment in the perception of those who care about the environment, and these people will be more loyal.
Another trick to shorten the distance is to go through additional services.
Stanislav Shitkov
Entrepreneur, owner of the Triton Laundries company.
We tried to implement a bonus loyalty program, but the result was not very successful. The specifics of our business are such that individuals contact us maximum twice a month. For them, the main thing is that the laundry is located in the courtyard of the house, within walking distance – at most, somewhere on the way to work. Therefore, we try to increase the efficiency of the service not through bonuses, discounts or gifts, but through physical proximity to the client.
For example, we recently introduced the possibility of return delivery, when a person delivers laundry to the laundry himself, and we deliver the completed order to his home.
Do small businesses need a loyalty program?
It is difficult to give a universal answer, since much depends on the specifics of the work of a particular company or entrepreneur.
Stanislav Shitkov
Entrepreneur, owner of the Triton Laundries company.
In my opinion, small business loyalty programs should be used very carefully. First you need to think carefully.
First, small companies are always narrowly focused on customer needs. In such niches, the level of competition is usually average or below average, and therefore the costs of switching to another supplier are quite high. Therefore, the customer base is loyal.
Secondly, small businesses are companies with low profitability of sales and any discount will be a direct minus from funds that could be allocated for development.
Thirdly, the loyalty program is a very costly initiative, primarily in terms of administration, since it is necessary not only to give some kind of bonus to customers, but also to somehow automate the process itself.
However, as we can see from the comments above, sometimes loyalty programs help attract customers and increase the check amount.
How to understand if your business needs a loyalty program
Several steps will help answer this question.
Understand your customers’ motivations
A lot depends on what products or services you provide. Loyalty programs work well if price is a top priority for customers. Because they can obtain a product or service of the same quality in other places under similar conditions. So, shampoo or cat litter can be found in a convenience store, in a chain supermarket, or on the marketplace. If the pet store is within walking distance, the product is in stock and there is also a loyalty program, this can be an additional incentive to purchase.
In the case of, for example, a beauty salon, options are possible. If the craftsmen provide average quality work, bonus programs will not lead to an increase in the number of repeat visits. And vice versa: people will be willing to pay full price for a visit to a specialist whose services they are very satisfied with.
Anna Justal
Entrepreneur, former owner of a business providing mobile dry cleaning services.
My experience in using loyalty programs began with the introduction of a discount of up to 20% for corporate dry cleaning clients. But it quickly became clear that this did not motivate further cooperation and did not lead to an increase in the check. Then I tried to introduce a discount on dry cleaning for every fifth item, and that didn’t work either.
Then I decided to work with cumulative points. The downside was that the program applied to absolutely all clients, even to those whose priorities were completely different criteria – quality of service, speed, and so on. In the final analysis, I saw that the percentage of those for whom the main parameter is a discount is only 20%. Then we completely removed the loyalty system and focused on the priorities of 80% of visitors. And this gave a more tangible result.
Rate your assortment
There are goods and services that are needed periodically. And for them, a loyalty program can work. For example, people who do something practical usually come to a craft store. Incentives of various kinds can motivate them to come back again (although if the product is unique, they will come back without it). But let’s say the product range only includes taps. How often does the faucet break down in the same apartment? Obviously not even every month. But if the problem is sudden, a person will turn to the nearest point if he simply knows about it.
Understand how simple and understandable a loyalty program you can create
The bonus system requires time and material investments. So there is a high risk of spending money and getting something that doesn’t work. We have sorted out the motivation and assortment. But there is another important point that can make the program ineffective: if it is incomprehensible to the client or looks unprofitable.
People love simplicity. Few people want to understand the conditions for accruing and spending points, counting 14 days from the date of the last purchase to make the next one, and so on. If you can’t make it simple and clear, it’s better to put the idea aside for now and come back to it later.
How to increase customer loyalty 🧐
